Simon Lord talks to Bill Milnes of Laurent Law and Andy Chang of Westpac about immigration trends and their impact on franchising

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Immigration to New Zealand - what will it mean for franchising?

Migration to New Zealand is currently running at record levels, with India, China, the Philippines and the United Kingdom all contributing strongly, and positive net migration from Australia for the first time in 25 years. Now it looks as if the USA could provide another boost to numbers (see The Trump Factor below).

Immigration is a topic of huge importance to franchising. Last year, statistics published by a leading business brokerage suggested that almost 70 percent of purchasers of existing franchise businesses are predominantly people who have immigrated to New Zealand from mainland China or India. While there are no such statistics available for purchases of new franchise outlets, anecdotal evidence suggests that the level of enquiry from immigrants is also considerable.

Surveys show that two of the biggest problems facing franchises right now are a limited pool of potential franchisees and a shortage of suitably-qualified staff for franchisees. Immigration could provide part of the solution to both those problems, but it’s a complicated field that is constantly changing. In this article, we’ll look at some of the opportunities and challenges.

On the day after the Brexit referendum result was announced, the Immigration New Zealand website received 998 registrations from Britons. In the 49 days following, more than 10,000 British nationals registered their interest compared with 4,599 during the same period the year before.

According to Bill Milnes, a long-established immigration consultant with Laurent Law, ‘We anticipate that there will be an increase in British migrants and job seekers but not to the extent that the reactive data suggests. However, this could be appropriate timing for franchisors in growth industries to be targeting recruitment from the UK.

‘Be aware, though, that unless you are able to offer skilled employment (see below) or a potential franchisee qualifies under the Investor category, he/she will need to apply under the Entrepreneur Work Visa Programme which is, in my opinion, the most difficult and expensive category of immigration to NZ.’

It’s worth remembering, though, that the partners and families of those who are granted residency are also good potential franchisees and employees – they’ll be looking for a fresh start, too.

The same applies to this next group. ‘Whichever way the US Presidential Election goes, there seems to be so much antagonism to both nominees that we anticipate a renewal of the flow from the USA of those carrying out “disaster planning”,’ said Bill back in September. ‘That’s what we saw in the early 2000s and again at the time of the GFC, so it’s not fanciful to expect that, for some voters, this could be the last straw that triggers their decision to leave.'

Indeed, immigration officials have said that the New Zealand Now website, which deals with residency and student visas, had received 1593 registrations from United States citizens since November 1 – more than 50 per cent of a typical month's registrations in just seven days.

‘The UK and USA results could well, at least in the short-term, sway the immigration statistics particularly regarding entrepreneurs and investors. And, as with Australia, there are no (well, not many!) language issues.’ While Bill's comment was tongue-in-cheek, it's actually an important point - see Language Matters below.

The relative performance of the New Zealand and Australian economies in recent years, and the decline in the mining industry across the Tasman, has encouraged many New Zealanders to come home as work dries up. That’s been further boosted by the withdrawal of some health and welfare benefits previously available to Kiwis in Australia, although in the longer term this may also have the impact of encouraging some New Zealanders residing in Australia to stay put in order to qualify for citizenship.

Australians coming to live in New Zealand face no such restrictions and the past couple of years have seen an increasing number of Australians looking to live here. Both returning Kiwis and Aussie immigrants form a valuable source of potential immigrants and employees for franchises, with no language, work permit or visa issues.

However, Bill says that this influx could create problems in other areas. ‘I suspect that it has created fear in the Beehive of a blow-out in social welfare budgets as those arrivals seek assistance until they return to the workforce,’ he suggests. ‘As a result, Immigration New Zealand (INZ) may be under considerable political pressure to minimise the number of work visas granted to migrants. We are seeing increasing numbers of work visa applicants coming to us after being advised by INZ that there are problems with their employment, and this can cause real difficulties for franchisees which rely upon a ready pool of part-time staff, such as those in the hospitality industry.

‘It’s worth noting that many of those who run into such problems have received inadequate advice or have chosen to do it themselves, assuming that a work visa application will be straightforward. Unfortunately, at the moment it’s not – we have a 40-point checklist of the stages we go through in preparing a successful application, which we’re happy to share with franchisors and franchisees.’

Compounding the employment situation is the number of student enrolments – 125,000 and growing, a figure which created over $1 billion in tuition fee income in 2015. This represents a 17 percent increase over the previous year. The fastest-growing markets were India (up 45 percent), China (up 13 percent) and Philippines (up 83 percent).

Students are traditionally a primary source of part-time employees, and Student Visas do enable holders to work part-time (up to 20 hours per week) in term time and full-time during scheduled holidays providing they meet certain requirements: for example, study programmes must be for at least two years and lead to a qualification that gains points under the Skilled Migrant Category. In addition, holders must take an English language course that meets conditions approved by INZ. Anyone looking to employ someone here on a Student Visa needs to check that they do actually have permission to work.

‘However, although the increase in student numbers may be making a huge contribution to the Budget, many of those students don’t see themselves as consumers of education – they see a Student Visa as the first step on the road to residence,’ says Bill. ‘What they are not told by government or private education agents is that a course studying English and a one or two year Diploma in Business is unlikely to lead to skilled employment and without that, there is no route to residence.

‘Consequently, we are seeing an increasing number of ex-students stuck on 12-month work visas who are entering into relationships to remain here or simply becoming overstayers. They are young people with mediocre business qualifications desperate to earn some money to pay their fees or to repay loans which they hoped would fund their adventure into a new country and a new life.

‘Although INZ is also concerned at the poor quality of students and outcomes, there is so much money involved for all parties (including the government) that we do not anticipate any changes in the near future. So employers can keep expecting to have young graduates looking for work but hoping for residence – and this is where franchises are actually disadvantaged.

‘As I wrote last year (see Immigration rules explained), INZ have decreed that in most cases, retail managers, restaurant managers and, critically, managers of franchise or group operations will not be considered ‘skilled’ for applications under the Skilled Migrant category. Consequently, we have the ridiculous situation where a baker in a supermarket may meet ‘skilled’ criteria, but the supermarket manager who employed him and to whom he reports is unlikely to qualify. If you have a keen young recruit, then, unless you can lift their role above that of retail or restaurant manager, or the equivalent in your industry, it is unlikely that they will qualify to apply for residence.

‘We have had success in achieving residence for some franchise managers, but in each case, the manager’s position description identified additional skilled tasks, such as group training and multi-branch supervision.

‘Some advisers and lawyers do continue to appeal to the Immigration & Protection Tribunal (IPT) over declined residence applications for retail and restaurant manager positions but, in my opinion, it is rare for INZ to get it wrong and frankly, there are very few declined applicants whose situations could meet the required level of “exceptional circumstances”.’

Another aspect of immigration policy that impacts upon franchisors and franchisees is the potential language skills of new immigrants. Bill says that, ‘For skilled migrants, INZ has identified level 6.5 in the International English Language Testing System (IELTS) as proving a suitable level of English for residence. However, current and recent students are seeking employment and further education with English skills which fall short of residence criteria.’

This is important because a study by the Franchise Relationships Institute in 2012, concluded that English literacy levels have a significant impact on the performance of franchisees, particularly in profitability and the delivery of customer service. Given the importance of good communication within a franchise, the report’s authors suggest that franchisors wanting to achieve excellence need to consider how they recruit, train and support English as a Second Language (ESL) franchisees.

The report states, ‘Not surprisingly, franchisors were significantly less likely to want to select ESL franchisees again. Ironically, ESL franchisees were significantly more likely to want to invest in additional franchised units.’

Bill has some suggestions for anyone employing ESL speakers. ‘In our experience, most migrants welcome positive corrections to their use of NZ English. Although they may have had English tuition, we should not expect them to absorb the variety of expressions we use in our work, in a few months of English training which was focused on assisting them into further study or to pass IELTS.

‘We encourage employers and workmates to encouragingly correct spoken and written English and to explain colloquialisms and industry jargon. For a new employee, being encouraged to understand and use ‘Kiwi-isms’ and in-house jargon gives a sense of belonging, whereas criticisms and put-downs because of their accent or lack of knowledge is alienating and destructive, to the person, to your team and to the business.’

One way in which the government is actively seeking to make a difference is in encouraging immigrants to establish themselves in other regions which are keen to welcome new bodies and new businesses.

Statistics suggest that just over half of all new immigrants currently settle in Auckland, and Bill says that the increase in the points values awarded to immigrants for employment and starting businesses outside Auckland seems to be having results. ‘This should provide opportunities for franchisors and franchisees to develop away from the big smoke. Key requirements of the Entrepreneur programme are that a proposed business be of ‘benefit to NZ’ which includes:

Export potential;

Introduction of new skills, systems, equipment to a region, or to NZ;

Employment of NZ citizens or residents.

‘The Entrepreneur programme is reasonably complex, but if you’d like to email bmilnes@laurentlaw.co.nz, I’m happy to provide a free summary of the criteria.’

One final aspect of immigration which Bill brings up is of particular interest to franchisors. ‘Many companies fail to address the need to encourage the spouse or partner of a new migrant franchisee or employee, to get involved in NZ society. If no attempt is made to assist partners to integrate through employment, voluntary work or other interests, don’t be surprised when homesickness and loneliness become a deal-breaker.’

This is actually an area where franchises can take the lead, encouraging partners to be involved with the business or to learn about a specific aspect of it, even if they don’t work in it on a daily basis. Involving the partner in franchise meetings with other franchisees will help them to build a wider social network and feel welcome and supported.

As the most recent Westpac Economic Overview noted, the recent record levels of net migration have provided a welcome boost to demand and helped to fuel our GDP growth. While this won’t last, the faster that the new immigrants are integrated into New Zealand society and encouraged to invest in business activity, rather than bricks and mortar, the better it will be for the country as a whole.

Franchising has a great deal to offer new immigrants: proven brands, proven systems, training, support, ease of finance and many other benefits. The challenge for franchisors is to reach out to the immigrant market and make the most of the opportunities it represents – for everyone involved.